Due: Wednesday, October 7, 2020 at 11:59 pm

3.(Worth 15 points) A bank wants to adjust upward its capital to satisfy its capital adequacy deficiency by moving its retention ratio from 40% to 70%.Explain how this will or will not move its capital in the right direction.

4.(Worth 15 points) Since forward contracts and loan commitments are not on balance sheet assets, but reflect off-balance sheet activities, a bank does not have to include them in risk weighted assets and thus do not need to be backed by capital.True/false and explain.

6.(Worth 10 points) Define the term moral hazard.Relatively high levels of capital may reduce the moral hazard faced by the government deposit insurance system.True/false and explain.

10.(Worth 15 points) A bank has $250 million in assets in the 0 percent risk-weight category.It has $475 million in assets in the 20 percent risk-weight category.It has $1250 million in assets in the 50 percent risk-weight category; has $1500 million in assets in the 100 percent risk-weight category; and $325 in the 150 percent risk weight category.This bank has $76 million in Tier 1 capital and $28 million in Tier 2 capital.What is this bank's ratio of total capital to risk assets? The regulatory minimum total risk-based capital ratio is below 8%. Is the bank in compliance with the regulatory minimum requirement?If no, what must the bank do to raise its risk-based capital ratio?

[Show your calculations]

11.(Worth 10 points) Suppose you are managing your bank's Treasury bond portfolio.Your long-term rate forecast is that interest rates will rise.How would this forecast influence the liquidity of your Treasury bond portfolio?

12.(Worth 15 points) Commercial bank managers may rely on both sides of the balance sheet to ensure adequate liquidity.Compare and contrast the potential effect on risk and return resulting from asset sources of liquidity as compared to that from liability sources of liquidity.How does a bank's size and financial soundness affect its liquidity management options?

14.(Worth 25 points) You are given an Excel Spreadsheet with financial data for 12 banking organizations.Five are small (average total assets less than or equal to $10 billion in column "T"); three are medium-sized (average total assets between $10 billion and $50 billion; 2 are large (average total assets between $50 billion and $100 billion) and 2 are larger institutions (average total assets greater than $100 billion).Compute two different types of liquidity ratios; plot them in separate graphs (a line for each banking organizations); discuss the behavior of these liquidity ratios over time.What do you observe?